Vietnam’s brewers say new luxury tax rules hurting beer market

Many brewers in Vietnam, one of the largest beer markets in Asia, are calling for the government to rethink its new luxury tax policy, saying higher taxes will push prices up and hurt sales. According to local media reports, the companies said at a meeting on Wednesday that they are very concerned about their business.

On January 1, the special consumption tax rate on beer was increased from 50 percent to 55 percent.

On top of that, new regulations also changed how the tax is calculated. Brewers are now required to work out the average retail price of a product, then add 7 percent to that number to come up with the final taxable price.

Speaking at the meeting, Le Hong Xanh, deputy CEO of the country's biggest beer maker Sabeco, said the government should suspend the new rules for at least one year, or brewers will have to increase their prices to make up for the tax hike.

Nguyen Hong Linh, CEO of Habeco, another major brewer, agreed. He said businesses need more time to prepare for the changes and reduce business risks.

He pointed out that the new rules were announced at the end of October last year and came into effect on January 1, not giving the industry enough time.

Nguyen Van Viet, chairman of the Vietnam Beer Alcohol Beverage Association, was quoted as saying that once local products become expensive, cheap products such as smuggled and counterfeit items may flood the market.

The brewers' request was supported by the Vietnam Business Forum, a group of associations of foreign businesses such as the US and European commerce chambers, Tuoi Tre reported. The group has sent a proposal to Vietnam's national legislature, asking it to revoke or suspend the new rules.

Many beer businesses said the "average retail price" rule is particularly problematic.

They said it is impossible to know exactly how much retailers, such as restaurants and bars, charge their customers to come up with an average price for luxury tax calculation. But tax agencies may have their reason to tighten the rule.

Previously beer producers calculated the tax simply based on the wholesale prices that they themselves set when selling to their distributors. That potentially created a loophole that allowed some companies, with their own network of distributors, to rig the system by setting unfairly low prices.

In July last year, for instance, state auditors ordered Sabeco to pay VND408 billion (US$18.68 million) in luxury tax dues that it allegedly owed from 2013.

The brewer was accused of selling its products to Sabeco Trading Co. Ltd, which it fully owns, at low prices thus paying less taxes. This company then sold the products, once again at low prices, to 10 other "regional" distributors, in which Sabeco has at least a 90 percent stake.

The scheme allowed Sabeco to pay only a small amount of luxury tax, before increasing final prices when dealing with retailers, local media then reported, citing state auditors. Vietnam’s beer production grew 10 percent to 3.4 billion liters last year and will hit 4-4.25 billion in 2020, according to figures from the beer association.